Indonesia Company Update

10 September 2021 Construction & Engineering | Construction

Wijaya Karya (WIKA IJ) Buy (Maintained)

Target Price (Return): IDR1,400 (+37%)
Counting Down To Better Days; Keep BUY
Price: IDR1,025
Market Cap: USD645m
Avg Daily Turnover (IDR/USD) 39,959m/2.78m
 Keep BUY, new IDR1,400 TP from IDR1,800, 37% upside. Our TP implies Analysts
8.2-7.7x FY21F-22F EV/EBITDA, close to its 5-year mean. We lower our
earnings forecasts by 43% and 19%, due to the second wave of COVID-19. Ryan Santoso
The pandemic’s impact was reflected in Wijaya Karya’s 1H21 performance, +6221 5094 0983
with revenue down 5.1% YoY – already priced in. However, we expect the ryan.santoso@rhbgroup.com
budget realisation of the Ministries of Transportation and Public Works to
accelerate, boosting WIKA’s FY21F performance.
Andrey Wijaya
 Recovery not as swift as expected. We cut FY21F-22F earnings by 43% +6221 5093 9846
and 19% and EBITDA by 21% and 11%, as 1H21 performance was below andrey.wijaya@rhbgroup.com
expectations. Up to July, WIKA secured IDR12trn new contracts – only 30%
of the initial target. Moreover, 1H21 revenue fell 5.1% to IDR6.8trn from Share Performance (%)
reduced project productivity to maintain an acceptable collection period, as YTD 1m 3m 6m 12m
the pandemic has also impacted project owners. Absolute (48.4) 12.6 (19.0) (40.1) (14.2)
 State budget realisation to accelerate. The Ministry of Transportation and Relative (49.9) 13.6 (19.3) (38.0) (32.0)
Ministry of Public Works’ budget realisation in August were at 50% and 52-wk Price low/high (IDR) 850 – 2,360
49%, with the remaining budget to be spent at IDR18trn and IDR77.7trn.
The Government is targeting for budget realisation to be above 95% by end Wijaya Karya (WIKA IJ)
2021, and this should boost the performance of construction companies, Price Close Relative to Jakarta Composite Index (RHS)
2,490 182
especially after the gradual relaxation of social restrictions.
2,290 166

 High Speed Railway (HSR) project still on track. Construction progress 2,090 151

1,890 135
in August reached 77.1%, and it is scheduled to begin operations by end
1,690 120
2022. Discussions of inflating costs by around USD1.7-2.1bn are almost
1,490 104
finalised. WIKA is currently the lead consortium with a 38% stake, while 1,290 89
state-owned railway operator Kereta Api Indonesia (KAI) has a 25% share. 1,090 73
KAI has proposed for a state injection that will be used to increase the equity 890 58
in Pilar Sinergi BUMN Indonesia. Management stated that KAI may replace 690 42

May-21
May-21
Mar-21
Oct-20
Oct-20

Feb-21
Feb-21
Mar-21

Apr-21

Jul-21
Jul-21
Sep-20
Sep-20

Nov-20
Dec-20
Dec-20
Jan-21
Jan-21

Jun-21
Jun-21

Aug-21
Aug-21
WIKA as the lead consortium.
 IPO plan for three subsidiaries in the next three years. The first spin-off Source: Bloomberg
next year will be Wika Industri Konstruksi, a steel fabricator for industrial
plants, oil & gas, and bridges – total funds to be raised is IDR1trn. Wika Overall ESG Score: 3.0 (out of 4)
Realty is scheduled for an IPO in 2023. Note that Wika Realty manages 21
SOE hotels, and expects to raise IDR2trn. Wika Rekayasa Konstruksi is E: Good
scheduled for a spin off in 2024, with a target fund of IDR1trn. This should WIKA uses three sources of water: Drilled wells, rainwater
unlock value for WIKA, and provide investors with an option to a niche harvesting, and natural resources. The company prioritises
construction segment. the use of natural sources (rain) and rainwater harvesting
for domestic activities. It built a wastewater treatment plant
 Risks. As construction projects accelerate, WIKA may need to increase its at its headquarters to treat grey water from ablution,
working capital, which leads to higher financing costs. Other risks include janitorial works, and pantry use.
delays in project completion and cash collection.
S: Good
WIKA has a competency development programme. It has
clocked 141,528 training hours, with upskilling sessions
attended by 5,897 employees from different divisions. In
2020, the company spent IDR149.4bn (2019: IDR11.98bn)
on employee training and education.
Forecasts and Valuation Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F
G: Excellent
Total turnover (IDRb) 27,213 16,536 22,843 26,452 29,754
WIKA consistently communicates with shareholders to
Recurring net profit (IDRb) 1,801 122 557 947 1,084 ensure that the latter is well informed on its financial and
Recurring net profit growth (%) 20.6 (93.2) 354.9 69.9 14.5 non-financial performance. Its investor relations teams also
Recurring P/E (x) 5.11 75.06 16.50 9.71 8.48 helps facilitate engagement between shareholders and
management.
P/B (x) 0.6 0.8 0.7 0.7 0.7
P/CF (x) 7.88 na 3.08 na 3.87
Dividend Yield (%) 3.8 5.0 na 1.2 2.1
EV/EBITDA (x) 2.21 8.62 4.42 3.85 2.95
Note:
Return on average equity (%) 16.5 1.4 4.6 7.4 7.9
Small cap stocks are defined as companies with a market
Net debtcover
Interest to equity
(x) (%) 23.4
3.65 67.0
0.90 41.0
1.78 45.2
2.07 35.0
2.09 capitalisation of less than USD1bn.
Source: Company data, RHB

See important disclosures at the end of this report

1
Wijaya Karya Indonesia Company Update
10 September 2021 Construction & Engineering | Construction

Financial Exhibits
Asia Financial summary (IDR) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F
Indonesia Recurring EPS 200.78 13.66 62.12 105.57 120.83
Construction & Engineering DPS 38.58 50.95 - 12.42 21.11
Wijaya Karya BVPS 1,640.41 1,320.24 1,382.36 1,475.50 1,575.21
WIKA IJ Return on average equity (%) 16.5 1.4 4.6 7.4 7.9

Buy
Valuation metrics Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F
Recurring P/E (x) 5.11 75.06 16.50 9.71 8.48
Valuation basis
P/B (x) 0.6 0.8 0.7 0.7 0.7
Our DCF assumptions include: FCF Yield (%) 2.1 (20.1) 23.2 (28.5) 12.6
i. WACC of 12%;
Dividend Yield (%) 3.8 5.0 - 1.2 2.1
ii. 3% long-term growth.
EV/EBITDA (x) 2.21 8.62 4.42 3.85 2.95
EV/EBIT (x) 2.55 12.53 5.76 4.73 3.57
Key drivers
Our forecasts are most sensitive to changes in: Income statement (IDRb) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F
i. Construction costs;
Total turnover 27,213 16,536 22,843 26,452 29,754
ii. Debt interest rates;
Gross profit 3,480 1,525 2,464 2,944 3,389
iii. Gains or losses from divestments.
EBITDA 3,719 1,597 2,452 3,232 3,721
Key risks Depreciation and amortisation (494) (498) (569) (599) (645)
Operating profit 3,225 1,099 1,884 2,633 3,076
i. Delays in project completion;
Net interest (367) (568) (534) (715) (889)
ii. Delays in cash collection.
Pre-tax profit 3,485 711 1,350 1,917 2,186
Taxation (864) (389) (613) (701) (763)
Company Profile
Reported net profit 2,285 186 557 947 1,084
WIKA is an Indonesian SOE involved in engineering
Recurring net profit 1,801 122 557 947 1,084
and construction on both domestic and overseas
projects. The company is involved in seven business
lines: Cash flow (IDRb) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F
i. Investments; Change in working capital (1,916) (2,005) 1,651 (3,489) 242
ii. Realty and property; Cash flow from operations 1,167 (1,334) 2,984 (1,601) 2,377
iii. Infrastructure and building; Capex (973) (514) (848) (1,017) (1,221)
iv. Energy and industrial plant; Cash flow from investing activities (4,575) (851) (254) (691) (1,133)
v. Industry (including precast concrete, Dividends paid (346) (457) 0 (111) (189)
construction industry and bitumen (asphalt)); Cash flow from financing activities (220) 6,790 (1,702) 2,849 1,458
vi. Construction and engineering;
Cash at beginning of period 13,974 10,347 14,952 15,980 16,536
vii. Integrated transportation systems.
Net change in cash (3,627) 4,605 1,028 556 2,702
Ending balance cash 10,347 14,952 15,980 16,536 19,238

Balance sheet (IDRb) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F

Total cash and equivalents 10,347 14,952 15,980 16,536 19,238
Tangible fixed assets 5,155 5,171 5,450 5,868 6,443
Total investments 8,164 9,569 9,983 10,463 11,020
Total assets 62,111 68,109 68,597 75,182 82,266
Short-term debt 6,109 20,968 15,363 17,363 18,563
Total long-term debt 8,725 5,148 8,132 8,132 8,132
Total liabilities 42,895 51,452 50,246 55,345 60,940
Total equity 19,216 16,657 18,351 19,837 21,326
Total liabilities & equity 62,111 68,109 68,597 75,182 82,266

Key metrics Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F

Revenue growth (%) (12.7) (39.2) 38.1 15.8 12.5
Recurrent EPS growth (%) 20.6 (93.2) 354.9 69.9 14.5
Gross margin (%) 12.8 9.2 10.8 11.1 11.4
Operating EBITDA margin (%) 13.7 9.7 10.7 12.2 12.5
Net profit margin (%) 8.4 1.1 2.4 3.6 3.6
Dividend payout ratio (%) 15.1 246.0 0.0 11.8 17.5
Capex/sales (%) 3.6 3.1 3.7 3.8 4.1
Interest cover (x) 3.65 0.90 1.78 2.07 2.09

Source: Company data, RHB

See important disclosures at the end of this report

2
Wijaya Karya Indonesia Company Update
10 September 2021 Construction & Engineering | Construction

Figure 1: Forecast revisions

Income statement New Old % Change
(IDRbn) 2021F 2022F 2023F 2021F 2022F 2023F 2021F 2022F 2022F
Revenue 22,843 26,452 29,754 26,105 29,876 33,568 -12.5% -11.5% -11.4%
EBITDA 2,452 3,232 3,721 3,120 3,611 4,193 -21.4% -10.5% -11.2%
EBIT 1,884 2,633 3,076 2,552 3,011 3,547 -26.2% -12.6% -13.3%
Net Income 557 947 1,084 981 1,172 1,518 -43.2% -19.2% -28.6%

Margin
EBITDA 10.7% 12.2% 12.5% 12.0% 12.1% 12.5%
EBIT 8.2% 10.0% 10.3% 9.8% 10.1% 10.6%
Net income 2.4% 3.6% 3.6% 3.8% 3.9% 4.5%
Source: Company data, RHB

Figure 2: RHB vs consensus

RHB vs
Income statement RHB Cons
cons
(IDRbn) 2021F 2022F 2023F 2021F 2022F 2023F 2021F 2022F 2023F
Revenue 22,843 26,452 29,754 22,496 27,303 32,379 1.5% -3.1% -8.1%
EBITDA 2,452 3,232 3,721 2,379 3,082 3,879 3.1% 4.9% -4.1%
EBIT 1,884 2,633 3,076 1,719 2,320 3,029 9.6% 13.5% 1.5%
Net Income 557 947 1,084 575 930 1,295 -3.1% 1.8% -16.3%

Margin
EBITDA 10.7% 12.2% 12.5% 10.6% 11.3% 12.0%
EBIT 8.2% 10.0% 10.3% 7.6% 8.5% 9.4%
Net income 2.4% 3.6% 3.6% 2.6% 3.4% 4.0%
Source: Company data, RHB

See important disclosures at the end of this report

3
Wijaya Karya Indonesia Company Update
10 September 2021 Construction & Engineering | Construction

Figure 3: WIKA’s 2Q21 financial highlights

(IDRbn) 2Q20 1Q21 2Q21 QoQ YoY 1H20 1H21 YoY % RHB % Cons
Revenue 2,934 3,924 2,843 -27.6% -3.1% 7,133 6,767 -5.1% 29.6% 30.1%
COGS -2,772 -3,656 -2,564 -29.9% -7.5% (6,463) (6,220) -3.8%
Gross profit 161 268 278 3.6% 72.6% 670 547 -18.4% 22.2% 22.7%
Profits from JO 93 213 114 -46.7% 22.4% 247 327 32.4%
Gross profit after JV 254 482 392 -18.6% 54.2% 917 874 -4.7%
Selling expenses -0 -2 -1 -22.7% 333.6% (3) (3) 2.8%
G&A expenses -236 -169 -204 20.7% -13.8% (429) (373) -13.1%
Operating expenses -237 -170 -205 20.3% -13.4% (431) (375) -13.0%
EBIT 18 311 187 -39.9% 965.0% 486 498 2.6% 26.5% 29.0%
FX gain (loss) -17 31 1 -95.2% -108.8% 47 32 -31.4%
Interest income 235 46 30 -33.5% -87.1% 286 76 -73.4%
Interest expense -385 -333 -257 -23.0% -33.3% (563) (590) 4.8%
(Allowance) for impairment 666 172 68 -60.3% -89.8% 606 240 -60.4%
Gain (loss) associated entity -203 -13 -1 -90.1% -99.3% (232) (15) -93.6%
Others -44 -15 77 -631.0% -275.4% (92) 63 -168.4%
Other income (expense) 252 -113 -81 -28.8% -132.0% 52 (194) -475.4%
Pre-tax profit 270 198 106 -46.3% -60.5% 537 305 -43.3% 22.6% 21.7%
Income tax expense -97 -93 -75 -19.0% -22.5% (213) (169) -20.7%
Income before MI 172 105 31 -70.5% -82.0% 325 136 -58.1%
Minority interests -21 -27 -26 -4.5% 21.5% (74) (53) -29.1%
Net profit 151 78 5 -93.3% -96.5% 250 83 -66.7% 15.0% 14.5%

EBITDA 120 461 275 -40.3% 129.8% 710 736 30.0% 30.9%

GPM 5.5% 6.8% 9.8% 9.4% 8.1%

EBIT margin 0.6% 7.9% 6.6% 6.8% 7.4%
Pretax margin 9.2% 5.1% 3.7% 7.5% 4.5%
Net margin 5.9% 2.7% 1.1% 3.5% 1.2%
Source: Company data, RHB

Figure 4: Results breakdown

Revenue 2Q20 1Q21 2Q21 QoQ YoY 1H20 1H21 YoY
Infrastructure and building 1,833 2,562 1,530 -40.3% -16.5% 4,518 4,092 -9.4%
Energy and industrial plant 313 589 588 -0.1% 88.2% 980 1,178 20.1%
Industry 705 703 653 -7.2% -7.4% 1,371 1,356 -1.1%
Realty & property 83 70 71 1.7% -13.8% 264 142 -46.4%
Total 2,934 3,924 2,843 -27.6% -3.1% 7,133 6,767 -5.1%
Source: Company data, RHB

Figure 5: Margin segment

Gross margin 2Q20 1Q21 2Q21 1H20 1H21
Infrastructure and building 7.7% 8.7% 10.3% 10.0% 9.3%
Energy and industrial plant 5.2% 7.7% 6.7% 9.8% 7.2%
Industry 2.7% 1.0% 13.3% 9.4% 6.9%
Realty & property -19.0% -9.8% -8.2% -3.2% -9.0%
Gross margin 5.5% 6.8% 9.8% 9.4% 8.1%
Source: Company data, RHB

See important disclosures at the end of this report

4
Wijaya Karya Indonesia Company Update
10 September 2021 Construction & Engineering | Construction

Figure 6: DCF calculation

(IDRbn) 2021F 2022F 2023F 2024F
EBIT 1,884 2,633 3,076 3,447
Tax on EBIT (471) (658) (769) (862)
EBIT x (1-tax) 1,413 1,974 2,307 2,585
Depreciation and Amortisation 569 599 645 709
Capital expenditures (848) (1,017) (1,221) (1,282)
Changes in net working capital 1,776 (3,417) 308 206

Free Cash Flow 2,910 (1,861) 2,039 2,217

PV FCF 2,910 (1,674) 1,650 1,613
Terminal value 27,908
Sum of PV FCF 4,499
PV of TV 20,305

Enterprise value (IDRbn) 24,804

Cash (IDRbn) 15,980
Debt (IDRbn) (23,495)
Minority interest (IDRbn) (4,116)
Equity value 13,173
o/s shares (m) 8,970
DCF/share (IDR) 1,400
Source: Company data, RHB

Figure 7: WACC breakdown

% of Debt 70%
% of Equity 30%

Cost of Debt (Kd)

Kd Before Tax 8.0%
Marginal Tax Rate 25.0%
Kd After Tax 6.0%

Cost of Equity (Ke)

Risk free rate 7.6%
Market Risk Premium 6.0%
Beta 1.78
Liquidity Premium 5%
Ke 23.3%

WACC 11.2%

TG 3%
Source: Company data, RHB

See important disclosures at the end of this report

5
Wijaya Karya Indonesia Company Update
10 September 2021 Construction & Engineering | Construction

Figure 8: WIKA’s 5-year EV/EBITDA band

(X)

20.0

18.0

16.0
+2SD: 14.6x
14.0

12.0 +1SD: 11.3x

10.0
MEAN: 7.9x
8.0

6.0

4.0 -1SD : 4.5x

2.0 .-2SD: 1.1x

0.0
Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

Jan-21
Apr-16

Jul-16

Oct-16

Apr-17

Jul-17

Oct-17

Apr-18

Jul-18

Oct-18

Apr-19

Jul-19

Oct-19

Apr-20

Jul-20

Oct-20

Apr-21

Jul-21
EV / Ebitda -2 Stdev -1 Stdev Mean +1 Stdev 2 Stdev

Source: Company data, RHB

Recommendation Chart
Date Recommendation Target Price Price
Price Close
2021-06-06 Buy 1,800 1,310
3,120 Recommendations & Target Price
2021-03-03 Buy 2,500 1,785
na

2,600

2,900

1,300
1,850

1,400

1,190

2,500

1,800

2020-11-25 Buy 1,800 1,565

2,620
1,800

2020-11-06 Neutral 1,190 1,240

2020-08-18 Buy 1,400 1,285
2,120
2020-06-10 Buy 1,850 1,285
2020-04-08 Buy 1,300 1,135
1,620
2019-04-05 Buy 2,900 2,210

1,120 Source: RHB, Bloomberg

Buy Neutral Sell Trading Buy Take Profit Not Rated

620
Sep-16 Dec-17 Mar-19 Jun-20
Source: RHB, Bloomberg

See important disclosures at the end of this report

6
RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-
term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next
12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
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Malaysia
Save as disclosed in the following link RHB Research conflict disclosures – Sep 2021
and to the best of our knowledge, RHBIB hereby declares that:
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subject company(ies) covered in this report.
8
3. None of RHBIB’s staff or associated person serve as a director or board member*
of the subject company(ies) covered in this report
*For the avoidance of doubt, the confirmation is only limited to the staff of research
department
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arrangement e.g. company/issuer-sponsored and paid trip) in relation to the
production of this report.
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1. RHB Securities (Thailand) PCL does not have a financial interest in the securities
or other capital market products of the subject company(ies) covered in this report.
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market products of the subject company(ies) covered in this report.
3. None of RHB Securities (Thailand) PCL’s staff or associated person serve as a
director or board member* of the subject company(ies) covered in this report
1. *For the avoidance of doubt, the confirmation is only limited to the staff of research
department
4. RHB Securities (Thailand) PCL did not receive compensation for investment
banking or corporate finance services from the subject company in the past 12
months.
5. RHB Securities (Thailand) PCL did not receive compensation or benefit (including
gift and special cost arrangement e.g. company/issuer-sponsored and paid trip) in
relation to the production of this report.
Indonesia
Save as disclosed in the following link RHB Research conflict disclosures – Sep 2021
and to the best of our knowledge, PT RHB Sekuritas Indonesia hereby declares that:
1. PT RHB Sekuritas Indonesia and its investment analysts, does not have any
interest in the securities of the subject company(ies) covered in this report.
For the avoidance of doubt, interest in securities include the following:
a) Holding directly or indirectly, individually or jointly own/hold securities or
entitled for dividends, interest or proceeds from the sale or exercise of the
subject company’s securities covered in this report*;
b) Being bound by an agreement to purchase securities or has the right to
transfer the securities or has the right to pre subscribe the securities*.
c) Being bound or required to buy the remaining securities that are not
subscribed/placed out pursuant to an Initial Public Offering*.
d) Managing or jointly with other parties managing such parties as referred to in
(a), (b) or (c) above.
2. PT RHB Sekuritas Indonesia is not a market maker in the securities or capital
market products of the subject company(ies) covered in this report.
3. None of PT RHB Sekuritas Indonesia’s staff** or associated person serve as a
director or board member* of the subject company(ies) covered in this report.
4. PT RHB Sekuritas Indonesia did not receive compensation for investment banking
or corporate finance services from the subject company in the past 12 months.
5. PT RHB Sekuritas Indonesia** did not receive compensation or benefit (including
gift and special cost arrangement e.g. company/issuer-sponsored and paid trip) in
relation to the production of this report:
Notes:
*The overall disclosure is limited to information pertaining to PT RHB Sekuritas
Indonesia only.
**The disclosure is limited to Research staff of PT RHB Sekuritas Indonesia only.
Singapore
Save as disclosed in the following link RHB Research conflict disclosures – Sep 2021
and to the best of our knowledge, the Singapore Research department of RHB Bank
Berhad (through its Singapore branch) hereby declares that:
1. RHB Bank Berhad, its subsidiaries and/or associated companies do not make a
market in any issuer covered by the Singapore research analysts in this report.
2. RHB Bank Berhad, its subsidiaries and/or its associated companies and its
analysts do not have a financial interest (including a shareholding of 1% or more)
in the issuer covered by the Singapore research analysts in this report.
3. RHB Bank Berhad’s Singapore research staff or connected persons do not serve
on the board or trustee positions of the issuer covered by the Singapore research
analysts in this report.
4. RHB Bank Berhad, its subsidiaries and/or its associated companies do not have
and have not within the last 12 months had any corporate finance advisory
relationship with the issuer covered by the Singapore research analysts in this
report or any other relationship that may create a potential conflict of interest.
5. RHB Bank Berhad’s Singapore research analysts, or person associated or
connected to it do not have any interest in the acquisition or disposal of, the
securities, specified securities based derivatives contracts or units in a collective
investment scheme covered by the Singapore research analysts in this report.
6. RHB Bank Berhad’s Singapore research analysts do not receive any
compensation or benefit in connection with the production of this research report
or recommendation on the issuer covered by the Singapore research analysts.
Analyst Certification
The analyst(s) who prepared this report, and their associates hereby, certify that:
(1) they do not have any financial interest in the securities or other capital market
products of the subject companies mentioned in this report, except for:
Analyst Company
- -
(2) no part of his or her compensation was, is or will be directly or indirectly related to
the specific recommendations or views expressed in this report.

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